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GASB 67 and 68 Pensions GASB 43 and 45 OPEB In Perspective

GASB 67 and 68 Pensions GASB 43 and 45 OPEB In Perspective. Mark D. Abrahams, CPA President, The Abrahams Group MASBO December 2013 Bi Monthly. Pensions and OPEB. In Perspective NCGA Statement 1 – 1980 GASB 25, 27 - Pensions GASB 34 – 2002, 2003, 2004

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GASB 67 and 68 Pensions GASB 43 and 45 OPEB In Perspective

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  1. GASB 67 and 68 PensionsGASB 43 and 45 OPEBIn Perspective Mark D. Abrahams, CPA President, The Abrahams Group MASBO December 2013 Bi Monthly

  2. Pensions and OPEB In Perspective NCGA Statement 1 – 1980 GASB 25, 27 - Pensions GASB 34 – 2002, 2003, 2004 GASB 34 Infrastructure – 2006, 2007, 2008 GASB 43, 45 – OPEB – 2006, 2007, 2008, 2009 GASB 67, 68 – Pensions – 2014, 2015

  3. NCGA Statement 1 - 1980 Combined Balance Sheet Statement of Revenues, Expenditures, and Changes in Fund Balance – Modified Accrual Statement of Revenues, Expenses and Changes in Retained Earnings – Accrual Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget to Actual Statement of Cash Flows

  4. Statement 1 ModelCombined Balance Sheet -All Funds and Account Groups Account Groups Proprietary Governmental Fiduciary Gen LT Debt Gen Fixed Assets* Capital Projects Fund Internal Service Funds Special Revenue Funds Trust & Agency Funds Totals (Memo) Enterprise Funds General Fund Assets Liabilities Fund Balance

  5. GASB Statements 25 and 27 Current Standards issued 1994 Statement 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans Statement 27 – Accounting for Pensions by State and Local Government Employers

  6. 1) Project Benefits Measurement Approach Illustrated 25 40 62 80 2) Discount Present Value *=Current – normal cost Past service-AAL Future Service Portion related to past service = Total pension liability * 3) Attribution

  7. GASB 27 Pension Accounting • Employer Liability • Annual required contribution (ARC) • Less: Actual contributions • Net pension obligation (NPO) • Tied to funding - ARC adjusted for the cumulative effect of prior differences between required contributions and actual contributions

  8. GASB 27 Pension Accounting Annual Required Contribution $100 Actual Contribution 80 Net Pension Obligation $ 20 Again, tied to funding

  9. GASB 34

  10. GASB Statement No. 34Basic Financial Statements Government- Wide Financial Statements Fund Financial Statements Fiduciary Funds Governmental Funds Proprietary Funds Balance Sheet Statement of Net Assets Statement of Net Assets Statement of Net Assets Statement of Revenues, Expenses and Changes in Net Assets Statement of Revenues, Expenditures and Changes in Fund Balance Statement of Activities Statement of Changes in Net Assets Budgetary Comparison statement (optional) Statement of Cash Flows

  11. Two New Government-Wide Statements Statements • Statement of Net Assets (Balance Sheet) • Statement of Activities (Income Statement) So What? • Accrual • Everything on one statement • Current and non current assets and liabilities • Capital assets on the face of the statement • Fixed Assets • Infrastructure (previously optional) • Long-term liabilities on the face of the statement • Look at long-term operational accountability

  12. STATEMENT OF NET ASSETS

  13. Effective for fiscal years beginning after June 15, 2013 Effective for fiscal years beginning after June 15, 2014

  14. Pension Summary New standard for financial reporting delinks financial reporting from funding Actuarial method now entry age normal as a level % of pay is the only permitted method as opposed to six actuarial methods Asset valuation will be fair value at the balance sheet date no longer smoothed market value Discount rate is the expected long-term rate of return on the assets Reporting the unfunded pension liability on the statement of net position (balance sheet) for single employer and agent plans; cost sharing multiple employer plans – report proportionate liability (teachers)

  15. Old and New Accounting GASB 27 – Tied to funding Annual Required Contribution $100 Actual Contribution 80 Net Pension Obligation $ 20 GASB 68 – Delinking Accounting and Funding Total Pension Liability $10,000 Fiduciary Net Position 8,500 Net Pension Liability $ 1,500 Liability Reported by Employer GASB 27 $ 20 GASB 68 $ 1,500

  16. Basics This will result in tens of millions of dollars of liabilities currently not reported hitting your net position Anticipate major swings in asset valuations based on fair values

  17. So What? Town of Wakefield* *Data from Sherman Actuarial Services

  18. Today’s Agenda GASBS 43 and 45 n a Nutshell:GASB 43 applies to trusts that are established in order to prefund OPEB benefits and for trusts that are used as conduits to pay OPEB benefits. GASB 45 applies to the financial statements issued by employers that offer OPEB. Employers () GASBS 43 • Administered as trusts, or equivalent arrangements • Employer contributions to the plan are irrevocable • Plan assets are dedicated to providing benefits to their retirees and their beneficiaries in accordance with the terms of the plan • Plan assets are legally protected from creditors of the employer(s) or the plan administrator GASBS 45 • Establishes standards for the measurement, recognition, and display of OPEB expense/expenditures and related liabilities (assets) • Consistent with GASB 27; Accounting for Pensions • Intended to improve financial reporting

  19. GASBS 45 n a Nutshell:GASB No. 45 for Employers (continued) In a Nutshell:GASB Statement 45 for Employers • Subject: accounting and reporting by employers for their OPEB expenses and obligations - most notably, for retiree healthcare benefits • Applies to all employers that pay all or part of the cost of the benefits

  20. In a Nutshell:GASBS No 45 for Employers (continued) GASBS 45 n a Nutshell:GASB No. 45 for Employers (continued) • Requires a change from PAYGO accounting (expense not recognized until obligation paid in years after retirement) to accrual-basis accounting (recognition of expense during years of active service) • Requires measurement and disclosure of the total and unfunded actuarial accrued liabilities for normal and past service costs—and related information about the funded status of the benefits • Does not require funding of OPEB costs being recognized

  21. Survey Says Very, very few communities and regions have created an OPEB Declaration of Trust Many did not know about a Declaration of Trust Many questioned the need for a Declaration of Trust given the acceptance of 32B:20 This is being clarified through revised 32B:20 changes

  22. 32B:20 Planned Revisions Total replacement of 32B:20 All inclusive - any political subdivision of the commonwealth The treasurer of the governmental unit shall be the custodian of the OPEB Establishes “OPEB Fund board of trustees”; an independent board of trustees selected by the governmental unit with investing authority for the OPEB Fund Complemented by a “declaration of trust to be adopted by the trustee or board” The assets of which shall be held solely to meet the current and future liabilities of the governmental unit for group health insurance benefits for retirees and their dependents All monies held in the fund … shall not be subject to the claims of any general creditor of the governmental unit An actuarial valuation report shall be submitted no later than 90 days after receipt of such report

  23. Today’s Agenda OPEB Summary a Nutshell:GASB No. 45 for Employers (continued) Requirements (GASB 43) • Administered as trusts, or equivalent arrangements • Employer contributions to the plan are irrevocable • Plan assets are dedicated to providing benefits to their retirees and their beneficiaries in accordance with the terms of the plan • Plan assets are legally protected from creditors of the employer(s) or the plan administrator Actions • Adopt 32B:30 • Accept Declaration of Trust • Irrevocable • Trustee • Reasonably fund portion of ARC annually • Prudent investments

  24. Financial Statement Impact Governmental Fund General Fund Fiduciary Fund 32B:20 acceptance Declaration of trust Material amount of money invested An immaterial amount of $ invested would trigger a governmental fund presentation • No 32B:20 acceptance • No declaration of trust • Does not matter how much money is invested Major or Non Major Fund • 32B:20 acceptance • No declaration of trust • Other non major fund or major if satisfies 10% rule

  25. OPEB Update 32B:20 Original legislation Ch 479 of 2008 Revised July 1, 2011 Proposed revisions filed with supplemental budget were not approved this past legislative session

  26. Closing Thoughts to Remember Remember the long-term accountability concept? Financial statement recognition and disclosures don’t create pension or OPEB obligations; instead, they simply make existing obligations more transparent. Collectively the changes in Statements 67 and 68 represent major improvements in public pension reporting, and will make pensions more understandable and comparable. OPEB? The changes in the pension new standards have not yet been applied to OPEB (delinking funding and reporting, etc.). The key term is Yet

  27. For Further Information Mark D. Abrahams, CPA President, The Abrahams Group President, AFS Associates Phone: 508 788-9172 Fax: 508 788-6217 Bettergov@aol.com www.theabrahamsgroup.com www.acopeb.com

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